Vietnam Macro: Macro forum takeaways

What’s new

► We attended a macroeconomics forum at the Banking University of Ho Chi Minh City (BUH) on Jan 6.

► Infrastructure investment has been slow due to regulatory weaknesses.

► But the new public investment law effective might alleviate this problem.

► Forum speakers expect Vietnam’s macroeconomic conditions to remain stable in 2020, with credit growth at 14%.

Key Takeaways

► Discussion of the 2019 public investment law was (for us) a key highlight of the forum.

► The law should channel effective public investment more effectively, thus triggering economic growth.

► From a stock picker’s perspective, Infrastructure, construction, and construction materials should benefit.

Infrastructure bottlenecks. The forum’s economist presenters noted that public investment in 2016–2019 was very weak, as exemplified by the delayed North-South highway. In particular, almost no public infrastructure investment occurred in 2018-2019. The experts attributed this mostly to weaknesses in the relevant regulations (i.e., the 2014 Public Investment Law). In addition, the experts stated that slow public investment is also attributable to high (albeit declining) debt/GDP levels, while the public-private partnership (PPP) system is still not effective because it relies on costly debt financing.

The 2019 public investment law came into effect on Jan 1 2020 and is expected to allow for increased fiscal stimulus. The new law regulates the designation of project leaders to take responsibility for the allocation of funds for public investment projects, a matter that was not clearly defined in the previous law. The experts believe that this will improve the mechanism for channeling public investment effectively, thus triggering economic growth. As a result, infrastructure, construction contractors, and construction materials should all benefit.

State Bank of Vietnam (SBV) officials emphasized FX stability and faster credit growth. The officials said that the SBV bought US$20bn in 2019, thus increasing the country’s foreign reserves to a new high of US$80bn. They added that the SBV will continue to emphasize FX stability in 2020. In addition, the officials guided for 2020 credit growth of +14% (2019: +12.1%) and M2 growth of +15% (2019 +13%).

Economic stability in 2019 despite the global slowdown. GDP growth remained high at 7.02% while average inflation was low at 2.79% YoY. Stability is mainly attributable to improved domestic consumption. Retail sales posted strong growth of 12% YoY in 2019. In addition, the quality of growth improved, as credit growth to nominal GDP growth has declined. 2019 credit growth (12.1%) to nominal GDP growth (9.5%) stood at 1.27x vs. the 1.33x ratio of 2018.

Our view: the new public investment law was perhaps the most intriguing part of the discussions. As always, the devil is in the details of implementation; but we think the reforms could help reaccelerate the rollout of infrastructure. On the SBV guidance, we would only note that the 14% target for 2020 is the same as the SBV’s initial target for 2019, which the banking system missed by 1.9ppt.

Please access the link for our complete report: BUH Macro conference takeaways

Analyst: Binh Truong, binh.truong@yuanta.com.vn